With some artists claiming they would “rather be raped by The Pirate Bay” than have Spotify streaming their music and pay a pittance – what is the sustainability of streaming music services? TMV drills down and analyses the three key elements to a sustainable streaming future; content owners, streaming services and advertisers in three separate serialised weekly posts.

Up this week we examine the issues at hand from an artist and content owner perspective. Next week TMV will focus on the issues from a streaming business’s perspective. The week after we will examine whether there really is enough advertising money from brands and their associated agencies to sustain all the streaming services currently in the marketplace.

Content Owners and Artists
Lets start with the fact that 36.14% of YouTube traffic is pirated and 36.30% is from legitimate Content Partners. So you have a business model that is making 36% of its income from advertising displayed because of the illegally pirated content it hosts. To top it off, YouTube will not take REAL responsibility and instead insists content owners read through reams and reams of take down notices (16000 pages in the case of one independent label per month).

So a streaming service which has more than a third of its income generated from hosting pirated content expects to flood you as a content owner with so much paperwork you cannot run your label business at all. There seems to be something amiss here as YouTube shares a small amount of its advertising revenue with the content owners content on which its business is based around. Reports vary that music content accounts for between 18.7% to 22% of Youtube’s overall Advertising revenue turnover on a global basis

YouTube shares none of the advertising revenue gained from hosting content infringing on content owners copyright. Perhaps rights holders should be demanding a cut of this advertising revenue as well? Some food for thought…

Publishers who own the rights in the actual songs have had to deal with an actual decrease in the rate they receive from PRS in the UK. In effect it means an artist who previously had to achieve 40 streams of their music on YouTube to make one-pound saw that increase to 100 streams to make the same one-pound. Understandably, artists and publishers alike are not happy with this state of affairs.

Executive Director of Sound Exchange in the US, John Simpson attempted to explain his organisations reasons for lowering streaming rates as follows, “it gives certain pureplay webcasters the opportunity to flesh out various business models and the creators of music the opportunity to share in the success their recordings generate.”

However, Tim Westegren, founder of streaming service Pandora stated to TMV upon the PRS announcement a few months back that “unfortunately, the new rates remain non-viable for online radio. There remains a big gap between the expectations of the rights organizations and the reality of online radio – and there remains a huge gap between the standards for online and terrestrial”. Tim’s statement made in reference to the UK market and new streaming rates on June 4th outlined above pretty much debunks PRS’s stated aim to encourage streaming businesses.

The rationale was that perhaps it would lead to more streaming businesses and a big increase in the overall streaming of music. However, Warner Music Group still does not have its legal content up on either Last.fm or YouTube and what is at issue is that according to Warner Music Groups CEO Edgar Boffman Jnr “artists and labels deserve fair recompense for their tunes when used by fast growing online services”.

Going further, Boffman Jnr was also quoted as stating that “advertising alone simply is not going to be enough…any premium video model is going to have to include very significant monetisation opportunities to above and beyond advertising to be effective.” TMV 100% agrees with this statement.

From an artists perspective, if they are paid €0.5 euro cents (half a cent), free radio at the rate of €0.05143 cents per play and subscription radio at €0.05882 cents per play by Last.fm, how can emerging artists expect to make even a measurable income little own large megastars? Any business manager would clearly state that royalty rate is unsustainable for any artist large or small. A quick question, how many banner MPU and skyscraper ads do Last.fm display on average per stream of a full song? Please do let us know if any of you readers have some inside knowledge.

On a different level, the fact that labels both major and independent are taking equity stakes in services such as Spotify and Imeem ignore that these types of deals cut out artists from income whilst the content owner/label profits based on its artist catalogue. In TMVs opinion this is quite clearly akin to stealing. Without, these signed artists labels would have nothing to leverage in securing equity stakes whether it be in MySpace Music, Spotify or other services.

Artists must be afforded some method of securing income from these equity deals – if that is not achieved then artists are effectively cut out of a very important revenue stream they have a rightful claim to in the digital realm. Going further, it also leaves the record labels wide open to quite valid criticism when it comes to P2P services claiming that labels are hypocrites when it comes to complaining about filesharers’ ripping off artists when the labels are doing just that with these equity deals.

On a final note, the fact that Swedish artist Magnus Uggla stated via Twitter last week that he would “rather be raped by The Pirate Bay” than see bugger all measurable income from plays on Spotify despite his label Sony currently being a 5.8% equity shareholder in Spotify. In TMVs view this signifies a much needed debate on content owners’ equity shareholdings in streaming music services and the peanuts paid through to artists. As an industry we have to work out how this unequal balance can be recalibrated to include artists receiving an equitable share from content owner streaming service equity holdings.

Next week TMV will examine the sustainability of streaming services from a service provider perspective. In turn we will examine the economics from their side and look to see if content owners and streaming services scaling requirements can work for each stakeholder.

Other readers also read:

Spotify: Labels Win, Artists Lose?

PART 2: The Streaming Music Business – Is It Sustainable?

PART 3: The Streaming Music Business – Is It Sustainable?